In theory, it makes perfect sense: Encourage your employees to think like entrepreneurs -- constantly coming up with ideas for innovative products and services -- and you're less likely to be blindsided by competitors with newer, cheaper offerings. But many programs created to foster so-called intrapreneurship fail, usually because they're unstructured and ineffectual. Not so at Cambridge Consultants, which creates products for clients in five industries, including telecom and health care. At Cambridge, intrapreneurship isn't just encouraged -- it's a way of life.

The company, which has offices in Boston, Mass., and Cambridge, England, sets aside 10% of its annual revenue to help employees found new businesses. If the spinoffs succeed, everybody wins -- staffers get to run their own show and Cambridge, which posted $40 million in sales last year, gets a share of the spoils. If they fail, the founders get their old jobs back and Cambridge chalks up the investment as a loss. Cambridge has created 40 new companies since it was founded in 1960. During the past 10 years alone, it has plowed more than $10 million into 10 spinoffs -- including CSR, a Cambridge, England-based semiconductor maker, and Alphamosaic, a cell phone graphics company that was acquired by Irvine, Calif.-based Broadcom last year -- and has earned more than $40 million in return.

The projects inspire Cambridge's 250 employees -- most of them engineers -- to approach their jobs with creativity and passion, says Andrew Diston, director of Cambridge's U.S. operations. Each year, Cambridge allots a spinoff budget to each of its five divisions. Employees pitch dozens of ideas to division managers throughout the year, and about 15% are green-lighted for the next phase, which includes several weeks of market research and a viability analysis. Next, the managers, along with chief technical officer Alan Richardson, evaluate each idea, recommending promising ones to Cambridge's board for a vote. If an idea receives unanimous support -- which happens about once a year -- Cambridge brings in a venture capital partner and makes an investment. Ownership structures vary, but Cambridge always gives the new entrepreneurs the rights to their inventions.

After that, the new businesses are more or less on their own. Cambridge's executives aim to create spinoffs that are likely to go public or be acquired within two or three years, enabling them to cash out quickly and plow returns back into the parent. Of course, that doesn't always happen; some spinoffs have folded, and half have been only moderately successful. Big paydays occur every few years. Last year, for example, CSR, which Cambridge spun off in 2002, went public on the London Stock Exchange in an IPO worth $400 million. Cambridge sold its stock soon after, pocketing $40 million -- 10 times its initial investment.

The ROI is nice, but the benefits aren't all financial. Cambridge's intrapreneurship program also helps it attract and retain top employees, Diston says. Stephen Eason, who joined Cambridge's British office in 1987, says the company's entrepreneurial focus sets it apart from other consulting outfits, which tend to offer little room for upward mobility.

Eason got his chance in 2002, when British pharmaceutical company Vectura acquired Aspirair, a drug inhaler he and four co-workers developed at Cambridge. In exchange, Cambridge, Eason, and his team received shares in Vectura, which went public on the London Exchange last July in an IPO worth $115 million. Cambridge will most likely sell its 6% stake soon, but Eason's in it for the long haul. He now heads Vectura's device development division, where he hopes to create an entrepreneurial milieu like the one at Cambridge. Many employees do more than they're asked to do, he notes. By harnessing that ambition, he says, companies can share in the profits.


Most intrapreneurship efforts fail. Cambridge Consultants bucks the trend by:

Investing 10% of its annual revenue in spinoffs

Involving all 250 employees in the process

Greenlighting just 15% of ideas -- and hiring employees back if projects fail


To learn more about intrapreneurship, read When Giants Learn to Dance by Harvard Business School professor Rosabeth Moss Kanter. The book, which is based on a comprehensive study of dozens of companies, including Kodak, Ford, and IBM, explores how businesses can strike the right balance between hierarchical stagnation and go-for-broke innovation.